3 things the GOP isn't telling you about the new tax bill

On Tuesday night, Republicans in Washington had all but passed a $1.5 trillion tax cut — by far the party’s largest accomplishment since President Donald Trump assumed office 11 months ago.

The President, with characteristic salesmanship, has been touting the bill officially called the Tax Cuts and Jobs Act as “one of the great gifts to the middle income people of this country that they’ve ever gotten for Christmas.”

His critics, by contrast, have derided it as an irresponsible giveaway to the rich.

So how will most Americans really fare under the plan? Here’s lowdown on three key Republican promises — where they stack up for the middle class and where they don’t.

What GOP says: You’ll get a tax cut.

Putting aside President Trump’s penchant for exaggeration, independent analysts agree the Republican bill would deliver a tax cut for the majority of Americans. In 2018, middle-income households — those earning $49,000 to $86,000 — will see an average tax cut of $930 on average, according to the nonpartisan Tax Policy Center. Those who make a bit more but might still plausibly be called middle class — families earning $86,000 to $149,000 — will get back even more, with an average tax cut of just over $1,800.

What you should know: It’s only temporary.

No one in the middle class is going to turn up their nose at an extra thousand bucks. But critics have been pointing out that the tax bill could have done much more for middle earners. That $900 pales in comparison to the average $51,o00 tax cut that Americans in the top 1% of earners — those taking home $733,000 and up — will reap. Overall, the 1% will reap more than 20% of the total value of the tax cut, roughly the same amount as Americans in the bottom 60% of the income distribution, the Tax Policy Center found.

There may be an even bigger problem for the middle class, however. Budget rules tied Republicans’ hands, limiting their ability to make changes that extend more than 10 years in the future. As a result, most personal tax provisions in the bill expire by 2026. Meanwhile, other tweaks — like a new, less generous way of accounting for inflation — will work against middle-class taxpayers over time. As a result, a decade from now, about two thirds of middle-class taxpayers will actually see a tax hike, albeit a relatively small one of about $150, according to the Tax Policy Center.

I've said it before, and I'll say it again: If you vote for people to lose their health care to pay for tax cuts to the top 1%, then you need to lose your job.

That’s because the bill doubles the standard deduction to $12,000 from $6,500 (and to $24,000 from $13,000 for couples). The standard deduction is the amount all taxpayers are allowed to lop off their income before applying tax rates. Taxpayers whose individual deductions — for items like a work cell phone or a home mortgage — exceed the standard deduction can claim those instead, but must detail, or itemize, each specific expense to the IRS. While more than 46 million tax filers would be expected to itemize next year under current tax law, that number would drop to less than 20 million under the Republican tax plan.

What you should know: Simple isn’t everything.

No one likes doing their taxes. So this seems at first glance like another clear win for the GOP. But it’s a bit more complicated.

Allowing all taxpayers to deduct another $6,000 or more from their tax bills could prove very costly to the government’s budget. To offset the lost revenue the bill makes a series of other changes to the code. It eliminates another perk known as the “personal exemption,” which allows taxpayers to deduct $4,150 for themselves and each qualifying child. Then because eliminating the personal exemption could hurt families, the bill also refines another facet of the code, doubling the child tax credit to $2,000 from $1,000 and dramatically raising the income caps to allow more people to benefit from it.

Even these elaborate tweaks, however, won’t necessarily ensure all middle-class families are better off with the new, larger standard deduction. Low- and middle-income families with many children could still end up worse off, as a result of losing the personal exemption, according to the Tax Policy Center.

There could be other losers too. Taxpayers for whom it would still make sense to itemize even with the larger standard deduction do not stand to benefit from its increase. Meanwhile, these taxpayers would still lose the personal exemption — and other valuable benefits too.

Under current rules, taxpayers are allowed to deduct their state and local taxes — a rule that largely benefits upper-middle-class and wealthy families in a handful of coastal states like New York and California. Under the new tax bill, this deduction will be limited to $10,000. Some of these same families will also be affected by new limits on the mortgage interest deduction, which could limit deductions for home buyers in high-cost areas, in addition to cramping homeowners’ property values.

What the GOP says: The economy will boom.

The tax cut’s stated goal is to boost the economy — leading to higher incomes and better job opportunities for millions of American workers. A better business climate is the reason cited by two moderate GOP senators who had initially wavered in support for the tax cut — Bob Corker of Tennessee and Susan Collins of Maine — when they announced their ultimate decisions to support the bill. On Monday, the Tax Foundation, a right-leaning think tank, said it believes the bill will create 339,000 more jobs and boost GDP growth to by 0.29 percentage points a year, to 2.13% from 1.84% over the next decade.

“The real lesson of the kick at Bob Corker is how terrified the left is of a bill that could be a popular tax cut that helps the economy and lifts incomes.” https://t.co/AIKwGTwSA3

What you should know: The plan could backfire.

Even the Tax Foundation, generally regarded as the most sympathetic of the various Washington organizations that crunch tax numbers, doesn’t think the tax cut will boost growth enough to cover its cost to the federal budget. The group forecasts that the tax cut will leave Americans with an extra $400 billion in debt to pay back a decade from now.

Another group, the Committee for a Responsible Federal Budget, said it thinks the bill could cost the U.S. as much as $2.2 trillion.

The more debt the bill ultimately creates, the less it is likely to add to the economy. That’s because government borrowing competes for investment dollars with private industry. If the government ends up having to borrow too much, interest rates will rise and choke off private companies’ ability to raise money to invest in new equipment or to add jobs.

Those concerns have led many analysts to conclude that the bill may ultimately generate little if any growth at all. Other reviews of various iterations of the Republican tax bill, including one by the Joint Committee on Taxation, Congress’s budget scorekeeper, pegged the economic growth to be anywhere from one-third to one-tenth of the Tax Foundation’s forecasts.